Social Security: a controversial call to raise age of eligibility

Change would amount to a 14 percent reduction in benefits, on average.

Bernard Wasow was making light of the disappearance of a favorite topic of his work, Social Security. "It has sunk out of sight," says the senior fellow at the Century Foundation, a liberal think tank.

Well, not quite. Last week the American Academy of Actuaries issued a rare "public interest" statement advocating raising Social Security's age when an eligible retiree receives full pension benefits another two years to 69. (A 1983 law boosted the age gradually from 65 to 67.)

"Holding the retirement age constant is a certain prescription for future financial problems," the 16,000-member academy stated. "Raising it to reflect increasing longevity would contribute to solving those problems."

Such a change would be equivalent to about a 14 percent average cut in Social Security retirement benefits.

Since 1 in 4 American families receive some form of Social Security benefit and since the two presumed presidential candidates differ sharply on their reform proposals for the nation's most popular safety net, the issue will likely be in the news again before the fall election.

Certainly the Democrats hope it will. They are trying to paint Republican presidential candidate John McCain as seeking the same failed goal as President Bush, the partial privatization of Social Security for younger workers.

Social Security popped up last month when Senator McCain said during a town hall meeting in Denver: "Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed."

Democrats and liberals leaped on this remark. They noted that Social Security benefits have always been financed by the working generation, that indeed this money transfer accounts for one-fifth of the entire federal budget.

It remains something of a mystery what changes in Social Security McCain would advocate if he wins the election. He promises not to raise the Social Security payroll tax, but then says everything is on the table. McCain's official campaign website (johnmccain.com) lists 16 topics as "issues" and deals with them in some detail. But not Social Security.

Barack Obama's website (barackobama.com) devotes almost three pages to Social Security. It notes his opposition to both hiking the retirement age "for hardworking seniors" and to privatizing Social Security. Senator Obama's plan calls for "shoring up" the program by applying the 6.2 percent payroll tax to income above $250,000 a year. This year, the cap subject to the tax stands at $102,000 (higher than the $97,500 cited on his website). So income between $102,000 and $250,000 would not be subject to the payroll tax. His proposal, in effect, would hit only high-income folks, about 3 percent of taxpayers.

Some of McCain's past statements on Social Security are collected at ontheissues.org, a nonpartisan website that provides information about the candidates. The statements indicate he sees Social Security finances as "a ticking time bomb," that surplus Social Security payroll tax revenues should not be used to finance other federal programs (as they are now), and that workers should be allowed to invest a portion of their Social Security taxes in private investment accounts (described by opponents as "partial privatization"). Again, whether these are his present views remains unclear.

Any plan for changing Social Security remains highly controversial. David Langer, a New York consulting actuary, sees the actuary group's call to raise the retirement age as inappropriate for a professional group and highly conservative and political, if not partisan, in its content.

Thomas Terry, an author of the academy statement, says its statement is based on recent annual reports of the Social Security Trustees indicating that the program is in actuarial imbalance. "I'm not sure what [political] means," he says.

Mr. Langer regards Social Security finances as actually in actuarial balance in its 75-year projections for the future and not needing further benefit cuts than the 25 percent already made or in the works since 1983.

To the Century Foundation's Mr. Wasow, the Social Security system definitely doesn't have a crisis "looking at us in the face." For one thing, any 75-year projection is highly problematical. The system was created in 1935 and its first 75 years will not be reached until 2010. Its founders would not have known of the end of the Great Depression, World War II, the cold war, legislative changes, and other factors impinging on its finances since 1935.

Wasow would not automatically oppose boosting the retirement age and other measures improving the system's financial soundness. He talks of hiking the cap on payroll taxes and at the same time increasing benefits for the well-to-do, though not nearly as much as the cap hike.

One problem, he notes, is statistics indicate longevity is on average closely associated with income. Those with low incomes are more likely to die at an earlier age than those with higher incomes. So the poor would be hit hardest by an increase in the retirement age.